How to Answer “How do you value a company with multiple business segments?” in Investment Banking Interviews
In investment banking interview prep, a common valuation prompt is: “How do you value a company with multiple business segments?” Interviewers are looking for a clean, decision-ready process—typically a sum-of-the-parts (SOTP) approach—rather than a single, blended multiple.
A strong answer shows you can choose appropriate valuation methods for multi-segment companies, tie assumptions to segment economics, and reconcile segment values back to an enterprise value and implied equity value.
What This Multi-Segment Valuation Question Tests
This is one of those investment banking technical questions that tests both mechanics and judgment. First, they want to see if you recognise that diversified companies often deserve segment-specific treatment (different peers, growth, margins, and risk), rather than forcing one multiple onto the whole business.
Second, they’re testing whether you can execute the bridge from segment value → consolidated enterprise value: allocate corporate costs, avoid double counting, handle intercompany effects, incorporate net debt and non-operating items, and explain how you’d sanity-check the outcome against trading comps and the current share price.
Finally, they’re evaluating communication. At analyst level, the “right” answer is structured and assumption-driven: you state the SOTP logic, explain which segments get DCF vs multiples, call out WACC/terminal value implications where relevant, and show you can prioritise what matters under time pressure.
How to Value a Multi-Segment Company: Step-by-Step SOTP Framework
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Step 1: Set up a sum-of-the-parts (SOTP) and map segments to methods
Start by stating that you’d generally use a sum-of-the-parts valuation: value each business segment using the method that best matches its cash-flow profile and available comparables, then add them up.
Practically, you first confirm how segments are reported (10-K/annual report segment note): revenue, EBITDA/EBIT, capex, and any disclosed assets or working capital. Then you choose segment methods:
- Public comps / precedent transactions for segments with clear peer sets and stable margins.
- DCF analysis for investment banking for segments with distinct growth/runway or where comps are noisy.
- Asset-based approaches for capital-heavy/financial-like segments when appropriate.
Call out early that the key is consistency: each segment’s metric (e.g., EBITDA vs EBIT) must match the multiple, and any items excluded at the segment level must be handled centrally to avoid double counting.
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Step 2: Build segment financials and normalise for corporate items and synergies
Next, explain how you’d get to “valuation-ready” segment earnings/cash flows. If segment EBITDA is disclosed, you can value on that basis, but you must adjust for:
- Corporate overhead / unallocated costs: ensure they are not ignored; either allocate them to segments or value segments pre-corporate and then subtract the PV of corporate costs separately.
- Shared assets and intercompany transactions: avoid valuing the same profit twice (e.g., internal transfer pricing) and ensure consolidation eliminations are reflected.
- One-offs and accounting differences: normalise segment margins (restructuring, litigation, unusual gains/losses) so the segment multiple/DCF aligns with sustainable economics.
- Synergies (if an M&A context): keep standalone segment values separate from buyer-specific synergies; mention them as an incremental value layer rather than embedding them inside base-case segment numbers.
This step is about making the segment outputs comparable and defensible—core business segment valuation techniques are often more about clean adjustments than complex maths.
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Step 3: Value each segment (multiples and/or DCF) with segment-appropriate assumptions
Then you actually value each segment.
Multiples approach: pick segment peer sets (or transaction sets) and apply the relevant multiple to the segment metric (e.g., EV/EBITDA × segment EBITDA). Use ranges and be explicit about what drives placement in the range (growth, margin, cyclicality, competitive position).
DCF approach: for segments you DCF, forecast segment revenue drivers, margins, reinvestment (capex, working capital), and convert to unlevered free cash flow. Use a segment-appropriate discount rate—either a tailored WACC (different beta/levered risk) or a group WACC with a clear justification. Compute terminal value using perpetuity growth or an exit multiple that matches that segment’s steady-state.
Mention that the point isn’t to run three separate full models in an interview; it’s to show you understand when a segment needs its own risk/growth assumptions and how that changes value.
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Step 4: Reconcile to consolidated enterprise value and then to equity value
After you have segment enterprise values, you sum them and then reconcile to a consolidated view.
Typical reconciliation items:
- Subtract net debt (or add cash, subtract debt) to move from enterprise value to equity value.
- Adjust for non-operating assets/liabilities (equity investments, pension deficits, leases depending on treatment, NOL value if relevant and supportable).
- If you valued segments before corporate costs, subtract the PV of corporate overhead (or subtract a corporate EV bucket based on the same logic you used in Step 2).
Then convert to implied per-share equity value using diluted shares (treasury stock method, convertibles if in-the-money), consistent with your capital structure assumptions.
Close this step by stating you’d cross-check the SOTP against where the company trades today and against a “blended” multiple as a sanity check—large gaps should be explainable (conglomerate discount, cycle timing, or segment mix shift).
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Step 5: Sanity checks, sensitivities, and how you’d present the output
Finish with how you’d validate and communicate the result—this is often what differentiates strong candidates.
Sanity checks:
- Compare each segment’s implied multiple to peers to ensure it’s not out of band.
- Check that the SOTP-implied consolidated multiple (e.g., EV/EBITDA) is reasonable vs the market.
- Ensure corporate costs and eliminations aren’t accidentally omitted.
Sensitivities:
- For DCF segments, flex WACC and terminal value (perpetuity growth or exit multiple).
- For multiple-driven segments, flex the selected multiple range and the segment metric (mid-cycle vs peak/trough EBITDA).
Presentation:
- Show a simple table: segment metric, multiple/DCF output, segment EV, plus/minus adjustments, total EV, equity value, and per-share value.
- If asked “what matters most,” point to the largest segment(s) and the key assumption (multiple selection, margin normalisation, or terminal value).
Analyst-Level Model Answer for Investment Banking Interviews
I’d typically value a diversified business using a sum-of-the-parts approach: value each segment on the method that best fits its economics, then add the parts and reconcile back to equity value.
Concretely, I’d start from the reported segment disclosure and identify the main segments and the metrics available—usually revenue and EBITDA/EBIT. For each segment, I’d pick the most defensible method: trading comps or transaction comps where there’s a clear peer set, and a segment-level DCF where comps are noisy or where the segment has a distinct growth and reinvestment profile.
Before applying multiples or running a DCF, I’d normalise segment profitability and make sure corporate overhead and other unallocated costs aren’t ignored. Depending on what’s disclosed, I’d either allocate corporate costs to segments or value segments pre-corporate and then subtract the present value of corporate costs as a separate line.
For the valuation itself, I’d apply segment-appropriate multiples to the right metric—so EV/EBITDA times segment EBITDA, using a range based on growth and margin differences versus peers. For any DCF segment, I’d forecast unlevered free cash flow and discount it using an appropriate WACC, with terminal value based on a perpetuity growth assumption or an exit multiple consistent with that segment.
Then I’d sum the segment enterprise values, adjust for non-operating items, and subtract net debt to get equity value and an implied per-share value. Finally, I’d sanity-check the implied consolidated multiple versus where the company trades and run sensitivities around WACC, terminal value, and key segment multiples.
- Lead with SOTP as the default; it signals the right mental model for diversified companies.
- Name the two core paths (segment comps vs segment DCF) and link method choice to segment economics.
- Explicitly handle corporate overhead/unallocated costs—this is a frequent interviewer trap.
- Use the right bridge: segment EVs → total EV → net debt/non-operating items → equity value → per share.
- Mention WACC and terminal value only where they matter (DCF segments), not as filler.
Common Pitfalls in Business Segment Valuation Techniques
- Valuing the entire company on one blended multiple without explaining why segments shouldn’t be separated.
- Forgetting corporate overhead, unallocated costs, or consolidation eliminations—often leading to overstated SOTP value.
- Mixing metrics and multiples (e.g., applying EV/EBITDA to EBIT, or using segment EBITDA that excludes items you later subtract again).
- Double counting shared cash flows or internal sales/profits between segments.
- Using one WACC for all segments without acknowledging that segment risk profiles can differ materially.
- Skipping the reconciliation from segment enterprise values to equity value (net debt, non-operating items, diluted shares).
Follow-Ups Seen in Investment Banking Technical Questions
When would you choose a segment DCF versus segment trading comps?
I’d lean on comps when there’s a clean peer set and stable margins; I’d use a DCF when the segment has unique growth/reinvestment dynamics, or comps are distorted by cycle or accounting differences.
How do you treat corporate overhead in a sum-of-the-parts?
Either allocate overhead to segments to get “true” segment EBITDA, or value segments pre-corporate and subtract the PV of corporate costs separately—what matters is not ignoring it and avoiding double counting.
Do you use different WACC assumptions for each segment?
Ideally yes if segment risk differs and you can support it (peer betas/target leverage); otherwise you can use a group WACC but you should acknowledge the limitation and sensitivity-test it.
How do you calculate terminal value for a segment DCF?
Either a perpetuity growth method with a conservative long-term growth rate, or an exit multiple applied to a steady-state metric—consistent with how that segment trades and its maturity.
How do you explain a gap between SOTP value and the market cap?
It could reflect a conglomerate discount, different cycle assumptions, execution risk, or the market pricing lower segment multiples; I’d validate by checking implied multiples and key sensitivities.
Practice Plan for DCF Analysis and SOTP Under Time Pressure
- Practise a 60–90 second “SOTP backbone” answer, then add detail only if prompted (corporate costs, WACC/terminal value, reconciliation).
- Build a simple one-page SOTP table template you can recreate from memory: segment metric → method → value → adjustments → equity value → per share.
- Drill the common traps: overhead treatment, eliminations, and metric/multiple consistency (EV/EBITDA vs EV/EBIT).
- For AceTheRound practice, run the question twice: first as a high-level explanation, then as a deeper technical follow-up where the interviewer pushes on WACC, terminal value, and sanity checks.
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